Why They Should Not Be Arrested - Pt 8

This post is one of a 10-part series of posts, the rest of which can be seen here.

In this post, I shall address some issues which have been raised by comments made (on this site, Twitter and elsewhere) querying my overall thesis.

Common-Law Crimes

A "common-law crime" is one which was not voted into existence by the legislature. Many things have been recognised to be criminal for thousands of years. For example, murder, rape and theft were all recognised by the police and by the courts as crimes, even before statute law (that is, laws enacted by our elected representatives) defined and refined the details.

It has been suggested by Fintan O'Toole of The Irish Times, for one, that what caused the insolvency of our banks was the commission of common-law crimes by bankers. He refers favourably to what happened in the case of The City of Glasgow Bank, implicitly suggesting that that case showed "just how it should be done" if our justice system would only work as well as did, notoriously, that of 19th century Scotland, oh yeah !

Well, I have seen no evidence that similar behaviour occurred in our own recent disaster, but if it had, the perpetrators could be charged, not with such common-law crimes, but with crimes which have now, like murder, been defined by the legislature.

In any case, the City of Glasgow situation was in hardly any way comparable: only the shareholders lost money.

Finally, I know of no (other) common-law crime which applies to the behaviour of those who are responsible for our banks' failures.

Unjust Enrichment

There is no crime of "unjust enrichment" known to Irish Law. I am not even aware of it being a crime in other jurisdictions.

There is a tort (meaning a civil wrong) of that name. It describes the situation where, for example, you give me a €50 note thinking it to be €20. I do not notice, but may have been "unjustly enriched" by €30. You may be able to sue me for the return of the €30 - good luck with that ! - but there is no question of my being punished for what happened.

It might just be possible that some of those responsible for the banking mess might need to be nervous about this. To be clear, though, they may worry about having to return money received, not about being arrested or imprisoned.

"General Criminality"

This is the most common objection to my thesis, if hardly the most compelling.

What is said is that our "top bankers" were all obviously up to their necks in "blatant criminality", by which it is meant that they disregarded all constraints of law to indulge their greed. I have even been assured, by intelligent people educated to third level, that said bankers knew what they were doing and were determined to ruin their banks and the Irish economy so that their own wealth would be maximised.

Challenged to justify this belief, they will cite the revelations about the behaviour inside Anglo-Irish Bank during 2008, but are unable to explain why, if both Seán FitzPatrick and David Drumm are now bankrupt, wealth maximisation was going on.

I see no evidence of this alleged "widespread criminality". Greed is not a crime.

What happened during 2008 was not a cause of the crash, but a desperate attempt to avoid it.

Recklessness

Almost as common as the last, this concept is mentioned often, and appropriately so, in my opinion.

There is no general crime of recklessness, or even of gross negligence, in Irish Law. (There are road traffic offences which amount to the same thing, but prosecuting for lending "carelessly" "without due care and attention" or "dangerously" under the Road Traffic Acts are not viable options).

Now, Irish law does recognise a crime of "reckless trading" (Companies Acts, section 297A). Prosecutions of this can only take place if the accused was a director of a failed company (meaning one in examinership, or liquidation).

Because of the way in which the failure of the Irish banks has been handled (even Anglo is not a "failed company" in the above sense), technically the crime does not apply. I will discuss this further in the next part of this series of articles. For now, I will say two things about it.

First, I do not believe that the authorities had that legal position in mind when they chose to proceed as they did, but anyone of another mind is welcome to try to change mine.

Secondly, I cannot resist reminding you that I asked for a mandate from the electorate last year to make "reckless lending" a crime in itself, but there was little interest from voters and none from commentators.

Coming Soon

Part 9, in which I (attempt to) answer the question

So, they just get away with it, do they ?

Why They Should Not Be Arrested - Pt 7

This post is nearly the last of a 10-part series of posts, the rest of which can be seen here.

Given the title of this series of posts, it is long past time for me to state a premise of my position - one that may surprise some readers:

• I believe that we should forget about "arresting people" altogether.

• Even if there are good reasons for believing that someone is guilty of crimes, to arrest him (no female suspects have been mentioned to me) is the wrong thing to do

• The correct thing is to charge him with the crimes, give him a fair trial and, if found guilty, sentence him

• All of that can be done without an arrest, unless the sentence includes a term of imprisonment

Outside the context of police catching people in the act of crime, arrest is an abuse of state power.

"It's a free country", people sometimes say. One of the characteristics of that freedom is that people can only be deprived of their liberty after what the Americans call "due process" has been followed. (It is an American phrase, perhaps, but not a peculiarly, or even originally, American idea - it's in clause 29 of Magna Carta all the way back in 1215, for example).

Forget about what you see and hear on television, and what you hear from your friends. Why are police forces so keen on arresting people and holding them for as long as possible without charge ? After all, the right to silence means that prisoners have no obligation to tell their captors anything, and are best advised to tell them nothing. (It amazes me that well-educated people - even, more shockingly, lawyers - complain about prisoners who "select a point on the wall and stare fixedly at it, for days on end, refusing to say anything".)

Why should he do anything else ? The prisoner is warned that anything said by him may be recorded and "used in evidence against him". Note that he is not promised that things he may say can be used for his defence. Note also that his interrogators may lie to him without penalty, while if he lies to them, or even makes an honest error, it may "hang him".

I am afraid that the reason why police like to arrest suspects and hold them as long as possible before charging them is so that the prisoners can be intimidated and the hope is that the process will result in a confession.

"But", you object, "if police cannot arrest and interrogate people, how can culprits ever be discovered and punished ?"

This is a common view, and a fairly natural one, but it overlooks some rather obvious points:

1. It is based on the presumption that confessions are both quite common and perfectly acceptable. I do not suggest that a confession is never satisfactory, but a system which excessively relies on confessions is asking for trouble.It gives incentives to police to mis-behave (see below for examples of where that happened).

2. It is much safer to use testimony from people other than the accused

3. There is no need to arrest someone, whether s/he be a suspect or not, in order to interview them. Indeed, the police ordinarily have no legal power to arrest people simply to question them.

4. Interviews, whether of someone expected ultimately to be charged or not, may take place anywhere, not just in police stations.

Have we forgotten so quickly about The Birmingham 6, The Guildford 4 or even the Dean Lyons case ? If so, I recommend that you just read John Grisham's "The Confession" - it may be fiction but people who know about these things will tell you that it is very true to life.

Why They Should Not Be Arrested - Pt 6

In part 5, I discussed criminal liability and promised to mention the other types of legal liability. That I now do.

To repeat: only if a crime is involved does the possibility of arrest or imprisonment arise.

Other important differences between criminal and civil law remedies are:

• Jury trial: Except for minor crimes,trial is by jury. The only non-criminal cases triable by jury relate to defamation
• Standard of proof: To be guilty of a crime, the evidence must be found to show guilt beyond reasonable doubt (sometimes abbreviated to BRD). In non-criminal cases, the standard is much less demanding: the balance of probabilities, which means that something has to be shown to be more than 50% likely to be true. Yes, 50.1% is enough.
• No police:The police will not be involved in a civil case, except as individuals, or as members of an organisation like any other
• Not about "guilt":Civil trials do not deal in guilt, they deal with liability (to pay, usually) or to resolve conflicts over e.g. planning issues.

In the context of Ireland's banking crisis, some form of (civil) legal liability may arise for consideration under the following headings :

• Negligence - or, in plainer language, carelessness. It may be that some bankers failed in duties of care to their employers, to customers or to outsiders. Other than New Beginning, who indeed have had little enough success (as they warned was probable), there is little or no sign of people making such claims in the courts, even as defences when banks sue them
• Restitution/unjust enrichment - if I give you €50 and we both, for some reason, mistakenly think that I have only given you back the tenner I borrowed yesterday, the law says that you have been unjustly enriched. (That does not necessarily mean that the law will oblige you to give me €40 in restitution: if you discover the extra money without realising how you got it and buy drinks for all around, for example.) However, if I sell you a house whose real value is €100,000 for €200,000, the law does not recognise it as unjust enrichment
• Contract - for instance, if in return for their bonuses some bankers promised specific things which they have not delivered. I am unaware if this is a possibility - it seems unlikely that such issues could remain hidden for long. And, yes, this indicates more incompetence, in that clearly at least some bonuses were paid to those who steered the institutions "onto the rocks"
• Deceit/fraud - yes, this can be a civil matter as well. I await examples.

The End

We are now approaching the end of this series of posts.

The final substantive part (no.9) will answer the question

So, they just get away with it, do they ?

and the absolute last part will be a summary of the series.

Before we get to those last two, there will be a short digression on the subject of "arrest", and part 8 will address some issues that have been raised by readers.

Why They Should Not Be Arrested - Pt.5

In this post, I will discuss the meaning of criminal guilt, why it is often difficult to find, and why it is not the same as responsibility/ culpability/ fault/blame.

The context, in case you've forgotten, is my current view that crimes did not cause the collapse of the Irish banks, notwithstanding the fact that Seán FitzPatrick and a number of others have - at least - a case to answer in respect of criminal charges. (The crimes in question were not a factor in the bank's collapse). However, it is beyond argument that Mr FitzPatrick is to blame, even if not solely, for the collapse of his bank. There is a handful of others, in that bank and in others, of whom exactly the same can be said.

On the other hand, a much larger number - dozens, perhaps even hundreds, of individuals can be said to have performed their duties with such incompetence that they also share the blame, and have to take responsibility. The nature of that responsibility is almost certainly not criminal in nature, and in some cases may not even have any legal significance at all.

What is a crime ?

In a democracy, "crime" (often, the expression "criminal offence" is used) describes conduct which the population, through its elected legislature, has decided shall merit punishment by the State, such punishment often including deprivation of liberty i.e. imprisonment. (There is no longer a significant number of "common-law crimes", but I will deal with that topic, which Fintan O'Toole raised in this article, in a later post.)

In general, legislators have criminalised actions which are agreed to be "morally wrong", which have serious adverse consequences on a society-wide basis, which were intentional and for which there was no reasonable excuse.

Not all behaviour which we regard as "morally wrong" has been deemed criminal. For example, simple failure to pay a debt is not a crime. Nor is greed or adultery.

Conversely, some crimes are not "morally wrong" in an immediately obvious way e.g. marginally exceeding the speed limit. In the case of yet others, a lot of people will deny that the conduct is wrong at all e.g. smoking cannabis.

Usually, to be a crime, there must be both an instance of prohibited conduct - an actus reus (guilty act) - and a guilty mind (mens rea). In other words, an unintended act will not count as a crime. As is well-known, ignorance of the law does not mean that the perpetrator has no mens rea.If you buy something from a thief, it is only a crime if you know that the thing purchased was stolen. You have still committed a crime even if you incorrectly think that, because you did not steal it yourself,it having been stolen does not matter.

Guilt Can be Complicated

Take the case of a fatal road traffic accident. Two vehicles collide, and one driver is pronounced dead at the scene, while the other is uninjured. Is it always the case that the survivor is guilty of the crime of dangerous driving causing death (maximum sentence 10 years) ? No. Is it always the case that the survivor is guilty of criminally careless driving (maximum sentence 2 years) ? No. Is it always the case that the survivor is guilty of any crime at all ? No.

For readers having difficulty in accepting these negative answers: please consider these possibilities:

• the dead driver was drunk
• the dead driver had a heart attack
• the dead man's vehicle was defective
• the surviving driver's vehicle had been sabotaged

And what if the surviving driver lets slip that he did notice something not quite right about his vehicle ? Does that mean he had mens rea?

For completeness, I should add that some crimes are crimes of strict liability. In such cases, a crime is committed even though the criminal was unaware of doing anything wrong at all. An example is possession of an unlicensed firearm: it does not matter that you did not know it was under your bed, or thought that it was a harmless replica.

I am aware of no "strict liability" crimes which could be said to have been committed in the genesis of the Irish banking collapse. It might be useful for the legislature to create some, though.

In Part 6, I will briefly look at the other forms of legal "blame".

Why They Should Not Be Arrested - Pt.4

"We all know who are responsible for the ruination of our country. If I was compiling the report I would name the bankers, the regulators, and the government ministers responsible. I would then recommend that their pensions and lump sums be withdrawn, have them arrested and have them tried for treason."

This tirade, from a letter in The Irish Times last year, echoing many before, and re-echoed often since, fairly well encapsulates the themes which this series of posts seeks to address.

I list my problems with it a little further down, but I should digress first to stress that I too am an outraged citizen of Ireland, that is to say, a victim of The Madness that gripped this country (and others) until the blow-out of 2008. I do resist resort to the "lynch-mob"; that does not mean that I want no assignment of blame at all. Regrettably, many seem to think that "real justice" went out with the Star Chamber, and the lynch-mob, and that there has been no replacement.

The problems with the tirade are :

1. "We all know who" - Actually I am not at all sure that we do. The names usually "trotted-out" are essentially scapegoats rather than evil miscreants
2. "responsible" - this is a key word, to be discussed in detail as we proceed
3. "withdraw pensions" - in other words, punish by confiscation and probable impoverishment. Without trial or other due process ?
4. "have them arrested" - code for John Gormley's beloved but disgraceful "perp-walk", or as we lawyers call it, "public humiliation, usually at the suspect's workplace, followed by detention without trial, all in the hope of intimidating a suspect into confession, false or otherwise"
5. "tried for treason" - what ? Nothing else ? What's "treason" anyway ? (Note also that "charge" carries with it a necessary implication of possible acquittal)

Like everyone else I know, when a major calamity hits, I look for a culprit behind it. There isn't always one (accidents happen;trust me), but it's natural to check.

When it is possible to identify someone whom we think that we can blame, nowadays we do not simply hang him immediately from the nearest tree. This, I suggest, is not merely because we have now forsaken capital punishment, nor that too many innocent people were victims of that in the past.

Among the real reasons, in my opinion, are:

• our innate fairness
• the need of everyone to feel that guilty verdicts are the end of a rational process of achieving some understanding what really happened
• our appreciation of the fact that "guilt" is not a straightforward matter

The last point is what I had planned to address in this post, but considerations of space require me to defer it to the next, which will now follow more quickly than this one followed Part 3.

Why They Should Not Be Arrested - Pt.3

Before considering the crimes that might possibly have had a causative role in the collapse of the Irish banks, we need to briefly look at the details of that collapse.

(All of the figures which now follow are stated in very "round" figures for ease of understanding, and are roughly, but only roughly, correct).

The Irish banks (those covered by The Guarantee) have "failed" because they have lost €100bn of the €500bn gross assets which they had they thought that they had in June 2008. Out of that €500bn, they owed €360bn to depositors (including multi-billion deposits from foreign banks), and €120bn to the bondholders, leaving a net worth of about €23bn, being capital, reserves and profits retained (i.e. not paid out as dividends).

In theory, then, they could afford to lose €23bn without "going bust". This was, on the face of it, a substantial buffer - Jérôme Kerviel's enormous rogue trading (allegedly) losses were only (!) about €5bn, after all. The somewhat relaxed attitude on the part of some commentators to the notion of guaranteeing the banks should, for balance, be seen in that light.

However, we all now know otherwise, and the insolvency of the banking system, had the State not stepped in, is beyond dispute.

How So Much ?

How could losses at this level, beyond even Morgan Kelly's October 2008 prognostication, have happened ?

In theory, one could imagine, for figures of this magnitude, the following scenarios:

1. Grand theft
2. overall collapse in the economy
3. disease, earthquake/tsunami or other natural disaster annihilating borrowers and their businesses
4. "rogue-trader" type behaviour similar to Nick Leeson or Kerviel (allegedly)
5. poorly-managed speculation in volatile assets e.g.derivatives a.k.a. "rogue trading" with the firm itself as the "rogue"
6. mis-pricing i.e. lending at an interest rate that does not allow the bank to make a profit
7. over-paying for deposits (a variation on 6 above)
8. incompetent lending on a large scale

Incompetence !

Only the last appears to have been significant in the collapse of the Irish banks, though mis-pricing (a type of incompetence in itself) of some loan products (most infamously the "tracker-mortgage") has not helped.

It could also be said that the incompetent lending was largely a factor of under-pricing the loans made, in the sense that lenders did not appreciate how risky the loans really were, and accordingly failed to impose terms of appropriate strictness. I believe that this understates the scale of the miscalculation: many billions were lent for projects so misconceived that no terms could have made the lending profitable.

Many people also suspect that "theft" would better describe many of those loans. Bankers, it is suggested, advanced the banks' money to their friends (actually, "cronies" is the term of preference) and the friends might as well have stolen it, given the improbability that it would be paid back. Notwithstanding undeniable cronyism, I have seen no evidence which comes close to justifying this suspicion, but I remain open to receiving it.

We are left with incompetence: the bankers advanced too much money which will never be repaid.

Incompetence Is Not A Crime

Provided that it is not dishonest, incompetence is not generally criminal. Otherwise, who would 'scape whipping ? as Shakespeare had Hamlet say. There are exceptions to this, though.

Before exploring whether the incompetence involved in this case is, or is not, caught by the proviso, or by other exceptions to the general principle, I am going to explain in Part 4 why there is an important issue at stake.

Why They Should Not Be Arrested - Pt.2

In Part 1, I told you about my attempt to arouse interest in a private prosecution of the "criminal bankers", and that it has so far "gone nowhere". The title of this series of posts gives a hint of the conclusion that I have reached as to why that has been so. I will now state it explicitly:

The Irish banking disaster was not caused by criminal behaviour

Indeed, it is not clear to me that the thing that above all caused the banking disaster can even be said to be a matter of straightforward immorality on the part of those who took the decisions which caused the damage.

None of this means that there was no criminal behaviour:there was. Nor does it mean that "immoral" conduct did not form part of the causal mixture:it did. Still less does it mean that no-one needs to be held accountable and possibly to suffer adverse consequences: they do (and some have, adequately or otherwise).

(What primarily caused it, in my opinion, was a loss of risk appreciation by all economic agents involved. Investors in bank shares - and, to a degree, in bonds - came to incorrectly believe that banking was pretty well risk-free. Unfortunately, bank management "bought-in" to this delusion, and behaved in a manner that tested the belief literally to destruction. Bad practices, poor regulation, hubris and other minor factors, including the so-called "bankers' bonuses" problem aggravated the rush over the precipice).

It does not really "give me a warm feeling" to arrive, however provisionally, at this view, notwithstanding that it does mean that people who have been friends and colleagues may not, therefore, be at hazard of being jailed. Like everyone else, my reflex response was to believe that disaster on such a scale had to have A BAD GUY behind it. It is as difficult for me as for everyone else - including, not so incidentally, many of the supposed culprits - to comprehend how so much damage could occur without someone acting in a really evil, criminal, manner.

There is a distinction between responsibility, moral culpability and criminal guilt. I do not think that it is novel or controversial to say that only if there is the latter do questions of "arrests","trial" or "jail" arise.

I would again add that, usually in response to calls for "immediate arrests" or the like, I have regularly posed, in public (on a series of internet fora) and in private, the question "which crime is it that they have committed ?", and have received only one even-halfway-satisfactory answer. I will reveal that answer in a later post in this series. Many plausible as well as some insanely paranoid answers will also be discussed.

My conclusion is not necessarily final: I am open to persuasion that I have got it wrong. And I repeat my offer: find me a way to prosecute privately a banker for something that caused the crash, and I will do it, or help others to do so.

The offence has to have caused the crash: something like a bank official "looting" a customer's deposit account for his own gain, or a bank over-charging a class of borrowers, is of no interest to me for this purpose. Such crimes have always occurred, and, human nature being what it is, can no more be totally eliminated than other crime.

Why They Should Not Be Arrested Pt.1

Matthew Tannin of Bear Stearns being arrested. A jury later acquitted him. (Copyright: San Francisco Sentinel)

This is the first in a series of notes concerning a topic on which I suspect that many readers will, at least initially, disagree with me.

I will be writing in an Irish context, and specifically in relation to the Irish banking sector, but the points that I plan to make can be applied not only to other sectors but also outside Ireland.

It may be useful to begin by noting this: for approximately the last four years (since solicitor Michael Lynn fled the jurisdiction), I have regularly - in public (on a series of internet fora) and in private - sought assistance, and/or offered to assist others, to privately prosecute any one of a series of notorious alleged miscreants, starting with Mr Lynn himself. All of these objects of public obloquy have in common that their (alleged) misdeeds are associated with Ireland's drastic change of economic circumstances since circa 2007.

No Takers

Although I have not given up, and the offer is still open, I have had no "takers". Not one. Zero.

This is surely very odd, considering that nearly everyone with whom I have ever discussed the matter - and that includes dozens of lawyers - is convinced that our current economic Armageddon is the result of criminal mis-behaviour (their emphasis) by a large collection of people belonging to one or more of the following groups:

bankers, regulators, politicians, auditors, economists, lawyers, auctioneers, accountants, civil servants, builders and property developers.

Yet, these discussions have failed to generate a single candidate who could be prosecuted for an identifiable crime !

It seems to me that this failure should be at least as difficult to understand as the absence of public prosecutions to date. This series of posts is my attempt to elucidate the issue.